This is the 5th in my series on the top seven things that you should be doing when you are seriously considering the filing of a Chapter 7 or a Chapter 13 bankruptcy. Here I talk about staying up to date with your rent, your mortgage and your car loan. In other words, pay your ordinary living expenses.
Most of my clients want to keep their house or want to continue living in their apartment. And most of my clients want to keep their car. If you are going to surrender your home, break your lease or surrender your car, that’s a different situation and you should probably disregard what I say here.
Bankruptcy Does Not Get Rid of Liens
Once the bankruptcy is finished the underlying debt should be gone but the lender’s lien on your car and your home will remain. This means that if you want to keep the house or car, you still have to make the payments – even though technically you don’t owe the debt any more. All the creditors are going to be under a court order which will tell them to leave you alone. This includes the debts you want to get rid of and the debts you want to keep paying. The creditors will all stop billing you. They might shut down your on line access to your accounts as well.
Keep Up House and Car Payments Even When the Bills Stop Coming
Most of the time, after the bankruptcy is over, the creditors you want to continue paying can be persuaded to start sending monthly statements again. If you reaffirm the debt you will start getting regular bills again once the bankruptcy is final. Whether you should reaffirm is a tricky subject which I have discussed elsewhere and won’t be dealing with here.
If you have not reaffirmed but want to keep paying, you can usually get the creditor to start sending what they call “informational statements.” They will look different than your bills used to. There is language in them which says something like “we know you don’t owe this because of the bankruptcy, but just in case you might want to pay voluntarily here’s the info about your account.
Do Not Pay Ahead
Keep up your payments but never pay extra. Do not pay ahead on your mortgage, rent or car loan or car lease. Paying ahead on things like that is considered to be hiding money. In Chapter 7 the trustee might go after the creditor or go after you to get the extra money back. In Chapter 13 you are proving you have money to spare and the trustee could want to raise your plan payment amount.
Listen to Your Attorney
I make a point of reminding my clients they have to continue paying these normal expenses. For some reason there seems to be a certain percentage who don’t hear me. They seem to think that since the bill stopped they don’t have to pay. Then when there is a threat to foreclose the house or send a tow truck for the car., my phone rings. I hear “oh I didn’t know I had to keep paying that.”
If you are far along in preparing to file a bankruptcy, I hope you have hired a lawyer. If you have not, it’s time you do that. What I say here may apply in most cases, but it might not apply in yours. Talk with your own lawyer about the details of your case.